EXPD

Business Context and Reporting Period

Company: Expeditors International of Washington, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2001
Business Overview: The Company provides global logistics services, including air and ocean freight forwarding, customs brokerage, and distribution management. It operates as a non-asset-based supplier, meaning it does not own aircraft or steamships. The Company maintains a global network of full-service offices and international service centers, with significant operations in the Far East, Europe, and the Americas.

Key Financial Metrics (Year Ended Dec 31, 2001)

Material Changes vs. Prior Period

• Revenue Composition: While total revenues declined slightly due to lower airfreight tonnage, Net Revenues increased by 10.6%. This was driven by improved margins in airfreight (up 5%) and ocean freight (up 3%) despite a 9% drop in worldwide airfreight tonnage.
• Service Segment Performance:
  • Airfreight: Net revenues increased 13% to $254.5 million (42% of net revenues).
  • Ocean Freight: Net revenues increased 21% to $138.9 million (23% of net revenues) due to strong demand and rate increases in the Far East trade lane.
  • Customs Brokerage: Net revenues increased 3% to $213.2 million (35% of net revenues), with distribution services accounting for nearly 36% of the increase.
• Cost Management: Operating expenses as a percentage of net revenues decreased from 77% in 2000 to 76% in 2001. "Other" operating expenses decreased by 2% as a percentage of net revenues, reflecting successful cost containment.
• Liquidity: Cash and short-term investments grew significantly to $218.7 million, supported by strong operating cash flows and improved billing/collection initiatives.

Guidance, Outlook, and Risks

• Guidance: The Company does not issue financial forecasts or projections. Management states that actual results may vary materially from forward-looking statements.
• Capital Expenditures: The Company expects to spend approximately $40 million on property and equipment in 2002, primarily for technology, leasehold improvements, and a building project in Egypt. These are expected to be financed with cash.
• Stock Repurchases: In November 2001, the Board expanded the Discretionary Stock Repurchase Plan to reduce outstanding shares to 50,000,000. As of Dec 31, 2001, no shares had been repurchased under this amended plan, though 1,000,000 shares were retired earlier in the year under a previous authorization.
• Risk Factors:
  • International Trade: Results are sensitive to global economic conditions, currency fluctuations, and government policies.
  • Third-Party Vendors: As a non-asset-based company, profitability depends on managing relationships with airlines and steamship lines.
  • Seasonality: The first quarter is traditionally the weakest, while the third and fourth quarters are the strongest.
  • Foreign Currency: The Company is exposed to currency risks; a 10% strengthening of the U.S. Dollar could reduce operating income by approximately $8 million.

Investor Verification Checklist

• Margin Sustainability: Verify if the 5% expansion in airfreight margins can be sustained given the 9% drop in tonnage and competitive pressures.
• Foreign Currency Exposure: Review the impact of the U.S. Dollar's strength on future earnings, particularly given the significant portion of revenue generated outside the U.S.
• Capital Allocation: Monitor the execution of the expanded stock repurchase program and the $40 million capital expenditure plan for 2002.
• Seasonal Cash Flow: Assess the Company's ability to manage working capital during peak seasons (Q3/Q4) when billings exceed collections.
• Goodwill Accounting: Note the upcoming adoption of SFAS No. 142 (Goodwill and Other Intangible Assets) in 2002, which will stop goodwill amortization but require annual impairment testing.